Schlumberger Announces Second-Quarter 2020 Results

• Worldwide revenue of $5.4 billion decreased 28% sequentially
• International revenue of $4.1 billion decreased 19% sequentially
• North America revenue of $1.2 billion decreased 48% sequentially
• GAAP loss per share, including charges and credits of $2.52 per share, was $2.47
• EPS, excluding charges and credits, was $0.05
• Cash flow from operations was $803 million and free cash flow was $465 million
• Board approved quarterly cash dividend of $0.125 per share

(BUSINESS WIRE)-- Schlumberger Limited (NYSE: SLB) today reported results for the second quarter of 2020.

Schlumberger CEO Olivier Le Peuch commented, “Before addressing our results, I would like to pay tribute to our employees and contractors for their remarkable resilience in the face of the historic COVID-19 pandemic that confronts us all.

“Our employees and contractors have shown outstanding adaptability to the new working environment with up to 55,000 of our people working remotely to maintain business continuity. They have embraced digital remote operations, adjusted work practices to mitigate contamination risks, and delivered benchmark safety and service quality performance for our customers. I would like to extend my heartfelt appreciation for their dedication and sacrifices while working in a difficult operating environment, and for their leadership in helping the communities where we live and work. As the pandemic lingers, we will remain cautious in our global operations. The safety of our people remains paramount.

“This has probably been the most challenging quarter in past decades. Schlumberger second-quarter revenue declined 28% sequentially, caused by the unprecedented fall in North America activity, and international activity drop due to downward revisions to customer budgets accentuated by COVID-19 disruptions. This speaks volumes about an industry confronted with historic oil demand and supply imbalances caused by demand destruction from the global COVID-19 containment effort.

“North America revenue declined 48% sequentially with land revenue falling 60% as customers dramatically cut back spending. International revenue declined 19% sequentially with Latin America and Africa experiencing the largest revenue declines due to COVID-19-related restrictions and the drop in deepwater activity. In addition, there was a production interruption in our Asset Performance Solutions (APS) projects in Ecuador caused by a major land slide that led to the rupture of the main pipeline. Revenue in the Middle East, Russia, Europe, and Asia proved more resilient as these regions, when combined, declined 10% sequentially.

“By business segment sequentially, second-quarter revenue for Reservoir Characterization and Drilling fell 20% and 24%, respectively. This was due to the North America land activity decline and COVID-19 disruptions in several international GeoMarkets. Production revenue declined 40% sequentially, driven by the precipitous drop in OneStim^® pressure-pumping activity. Cameron revenue declined 19% sequentially, mostly due to North America land activity decline in Surface Systems and Valves & Process Systems.

“In the face of such adversity, Schlumberger has demonstrated resilience. Through our decisive actions, we protected our liquidity and cash positions, and sustained resilient international margins while navigating the trough of this downcycle. The results of our actions and continued success with technology—particularly digital—can be seen from our decremental margins and our strong free cash flow generation.

“First, our cash flow from operations was $803 million and we generated $465 million of free cash flow despite significant severance payments during the quarter. We continue to be opportunistic in accessing the financial markets, systematically refinancing and spacing out future debt maturities, and taking proactive measures to enhance our liquidity position.

“Second, despite the severe drop in international revenue and the significant effect of the APS production interruption in Ecuador, international margin was extraordinarily resilient, as it was essentially flat compared to the previous quarter. Three out of our four business segments and more than half of our 13 international GeoMarkets either expanded or maintained their international margins on a sequential basis. This was due to our swift and decisive actions to reduce operating costs, restructure, and rationalize our asset base. We are permanently removing $1.5 billion of structural costs annually by reorganizing Schlumberger into a leaner and more responsive company that is better aligned with our customers’ workflows. We are combining our 17 product lines into four divisions, structuring our geographic organization around five key basins of activity, and streamlining our management structure. In addition, significant progress was also made in improving the results of previously underperforming business units and digital technology adoption has increased. Overall this quarter, we posted a decremental operating margin of 18% sequentially.

“In response to market conditions, we recorded $3.7 billion of pretax restructuring and asset impairment charges, including $1 billion of severance costs, as of the end of the quarter. The remaining portion of the charge largely relates to the non-cash impairment of certain assets.

“Altogether, I am extremely proud of our operational and financial performance during the quarter as we continue to build the foundation for our future success while we navigate the trough of this downcycle.

“Looking at the macro view in the near-term, oil demand is slowly starting to normalize and is expected to improve as government measures support consumption. However, subsequent waves of potential COVID-19 resurgence pose a negative risk to this outlook.

“The conditions are set in the third quarter for a modest frac completion activity increase in North America, though from a very low base. Internationally, markets may continue to be disrupted by the pandemic and will continue to adjust to budget levels set during the second quarter, but this would be mostly offset by the seasonal return of activity in the Northern Hemisphere and the rebound of Latin America from its second-quarter weakness. However, any further material COVID-19 disruption or significant setback in oil demand arising from a slower economic recovery could present downside risks to this outlook. Absent these risks, we anticipate flat sequential revenue on a global basis and our pretax segment operating income and margin should expand as a result of our restructuring efforts, improved activity mix, and sustained benefits from technology adoption, including digital.

“We believe the decisive and comprehensive measures we have taken to face the industry reality will continue to protect our liquidity and cash positions and allow us to expand our margins. We have taken the long-term view in restructuring our company—aligning with our customers’ workflows, empowering a lean and responsive organization, and accelerating the execution of our performance strategy, with capital stewardship, fit-for-basin, and digital as key attributes of success. I am extremely optimistic about the future of Schlumberger, building on the strength of our international franchise and positioning the company as the performance partner of choice for our customers in the new industry landscape.”

Other Events

During the second quarter, Schlumberger issued EUR 1 billion of 1.375% Notes due 2026, $900 million of 2.650% Notes due 2030, and EUR 1 billion of 2.000% Notes due 2032.

In June, Schlumberger repurchased $1.5 billion of its outstanding notes, consisting of $935 million of its 3.300% Notes due 2021 and all $600 million of its 4.200% Notes due 2021.

On July 23, 2020, Schlumberger’s Board of Directors approved a quarterly cash dividend of $0.125 per share of outstanding common stock, payable on October 8, 2020 to stockholders of record on September 2, 2020.

Consolidated Revenue by Area

North America

North America area consolidated revenue of $1.2 billion was 48% lower sequentially with North America land revenue falling 60%, in line with the decline in rig and hydraulic fracturing stage counts, as customers dramatically cut back spending. OneStim fracturing and land drilling activity fell as customers revised budgets downward, challenged by low oil prices, take-away constraints, and storage overflow. In addition, sales in North America land of Surface Systems, Artificial Lift Solutions, and Valves & Process Systems decreased sequentially. North America offshore revenue decreased less severely, 12% sequentially.

International

Consolidated revenue in the Latin America area of $543 million decreased 42% sequentially, primarily due to a production interruption in our APS projects in Ecuador. In addition, COVID-19 disruptions affected drilling activities in Argentina, Bolivia, Colombia, and Peru. In contrast, Mexico and Brazil declined less severely as reduced land activity was partially offset by offshore exploration operations, where work continued with COVID-19 risk-mitigation protocols.

Europe/CIS/Africa area consolidated revenue of $1.4 billion decreased 17% sequentially due to a significant drop in activity in the Sub-Sahara Africa and North Africa GeoMarkets from COVID-19 disruptions, project cancellations, and work stoppages. The Russia & Central Asia GeoMarket was resilient as COVID-19 activity disruption was offset by the pickup of seasonal land activity in Russia, in preparation for the summer drilling campaigns. Revenue also declined less in the North Sea and Continental Europe, following the winter slowdown and as activity resumed later in the quarter after COVID-19 lockdowns were relaxed.

Consolidated revenue in the Middle East & Asia area of $2.1 billion decreased 12% sequentially, primarily due to a significant drop in activity in the Eastern Middle East and South East Asia GeoMarkets from work delays, project suspensions, and completed contracts. Revenue in the North Middle East and Saudi Arabia & Bahrain GeoMarkets declined less due to new projects. Revenue in the Far East Asia GeoMarket was essentially flat as project delays were offset by the seasonal rebound and resumption of activity after the lifting of COVID-19 lockdowns in China.

Reservoir Characterization

Reservoir Characterization revenue of $1.1 billion, 84% of which came from the international markets, decreased 20% sequentially. North America and international revenues declined 17% and 20%, respectively. This was mainly due to lower Wireline activity in North America land and the Eastern Middle East and Sub-Sahara Africa GeoMarkets. Testing Services revenue was also lower mainly in the Sub-Sahara Africa GeoMarket as a result of completed projects and delayed and cancelled activities due to COVID-19. WesternGeco^® revenue declined as a project was completed in the Middle East, while Software Integrated Solutions (SIS) revenue declined slightly as well.

Reservoir Characterization pretax operating margin of 18% rebounded 357 bps sequentially despite the significant revenue decline. This margin expansion was evident both in North America and internationally. Outperformance was delivered by prompt cost reduction measures in compensation through headcount rationalization and furloughs, particularly in SIS, WesternGeco, and Wireline.

Drilling

Drilling revenue of $1.7 billion, 82% of which came from the international markets, decreased 24% sequentially. North America and international revenues declined 48% and 18%, respectively. This was primarily due to the activity decline in US land as rig count dropped more than 50% while COVID-19 disruptions caused drilling activities to be cancelled or suspended in several international GeoMarkets. Drilling activity in Russia & Central Asia, however, was resilient as COVID-19 disruption was offset by seasonal pickup in Russia land activity in preparation for the summer drilling campaigns.

Drilling pretax operating margin of 10% contracted by 289 bps sequentially, posting a 21% decremental operating margin. The margin contraction was primarily in North America, while international margin was resilient and flat sequentially. Drilling & Measurements and M-I SWACO accounted for most of the margin decline and experienced the largest drop in activity due to their sizeable footprint in North America land.

Production

Production revenue of $1.6 billion, 75% of which came from the international markets, declined 40% sequentially. North America and international revenues declined 62% and 26%, respectively. This was driven by the precipitous drop in OneStim pressure-pumping activity in North America land. APS revenue was also down by nearly 50% due primarily to a significant production interruption in Ecuador. International revenue decreased due mostly to COVID-19 disruptions—mainly in the Latin America South, Sub-Sahara Africa, Saudi Arabia & Bahrain, and Eastern Middle East GeoMarkets.

Production pretax operating margin of 2% contracted by 630 bps sequentially, posting a 17% decremental operating margin. The margin decline was due to reduced profitability in North America land from the dramatic fall in activity, which mostly impacted the OneStim margin. International margin declined also, albeit less severely, driven by the drop in APS revenue in Ecuador and the reduction of Well Services activity.

Cameron

Cameron revenue of $1.0 billion, 67% of which came from the international markets, decreased 19% sequentially. North America and international revenues declined 33% and 7%, respectively. The North America decline was driven by lower Surface Systems and Valves & Process Systems revenues while international activity decline was mainly due to lower Drilling Systems sales. Meanwhile, OneSubsea^® revenue was resilient, only declining slightly with international revenue growing sequentially, but offset by a decline in North America.

Cameron pretax operating margin of 8% declined by 180 bps sequentially, posting a 17% decremental operating margin. The margin contraction was primarily due to reduced profitability in North America, impacting Surface Systems and Valves & Process Systems margins, while international margin expanded sequentially due to OneSubsea and Drilling Systems. Prompt cost reduction measures through headcount rationalization, furloughs, and lower manufacturing costs contributed to the international margin expansion.

Quarterly Highlights

Schlumberger is leading the industry in the development of Digital solutions to increase performance in drilling and reservoir characterization. Deploying these solutions in the current challenging industry environment can help customers maintain business continuity and improve their teams' performance worldwide. Examples of this during the quarter included:

• As announced last quarter, Schlumberger and ExxonMobil are jointly working on the deployment of digital drilling solutions around planning, execution, and continuous improvement through learning. As a next step, ExxonMobil and Schlumberger have finalized an enabling agreement for the deployment of DrillOps* on-target well delivery solution in ExxonMobil’s unconventional operations. The technology is expected to enable faster, lower-cost wells through drilling automation and orchestration of the digital well plan generated by DrillPlan* coherent well construction planning solution.

• Schlumberger and Honghua Electric Co., Ltd. entered into a memorandum of understanding (MOU) for the seamless integration of the DrillOps on-target well delivery solution with all new Honghua rigs. Under the MOU, Honghua will manufacture and sell rigs that have plug-and-play capability with the DrillOps solution, which integrates planning and operations while automating well construction tasks in order for the rig to operate at peak performance throughout the execution of the drilling plan.

• In the United Arab Emirates, Dragon Oil plc awarded Schlumberger a contract for deployment of agile reservoir modeling through the DELFI* cognitive E&P environment, the first implementation of this kind in the Middle East and North Africa region. A joint Dragon Oil and Schlumberger team will use this approach to enhance productivity of Dragon Oil’s Lam Main and Lam West Fields in Turkmenistan. The approach will use a combination of automated, traditional domain workflows and workflows driven by machine learning and AI to rapidly provide insights into development strategies for optimizing production across the life cycle of the assets.

• The Nigerian Department of Petroleum Resources (DPR) signed an agreement for the provision of a Schlumberger virtual data room in support of the first-ever virtual marginal fields bid round to be held this year. DPR is adopting Schlumberger digital technologies in alignment with its commitment to promoting Nigeria’s oil and gas assets online to a global audience in a secure digital environment. The agreement includes an online digital solution to support the bid round delivered by Schlumberger via software as a service (SaaS). The solution uses the Petrel* E&P software platform to improve subsurface insight and to identify bypassed reserves.

• GAIA Xchange* data marketplace, the world’s first digital E&P data marketplace, was launched in the first Schlumberger Online Conference. GAIA Xchange marketplace brings together global content providers and consumers on a single, open platform. The GAIA* digital subsurface platform enables customers to securely and instantly access multidomain, evergreen E&P data as a subscription from a growing number of content providers. GAIA Xchange marketplace has multiple E&P content providers who can showcase, manage, and deliver their data immediately to prospective buyers.

• In the Gulf of Mexico, Schlumberger used the Ora* intelligent wireline formation testing platform to characterize a complex reservoir in a deepwater exploration well for Repsol. Remote collaboration between the Repsol and Schlumberger teams in town and at the wellsite enabled the efficient deployment of the Ora platform, which secured pure fluid samples at multiple depths in the unconsolidated formation. The Ora platform’s technology helped the operator investigate reservoir fluid viscosity variations and conduct a high-quality deep transient testing on wireline—without flaring—to prove economic producibility. Repsol announced a significant discovery just days after the survey.

The deployment of evolving, differentiated business models, fit-for-basin technologies, and technology access with regional partners further differentiate Schlumberger within the industry. A few examples of this included:

• In the Gulf of Mexico, secure remote capabilities delivered by OneSubsea helped BP keep the Mad Dog 2 project on schedule. Using a suite of remote solutions, including remote customer-witness factory integration testing (FIT), a remote master control station, and integrated control and safety systems, OneSubsea was able to provide overviews of system functionality without requiring onsite witnessing. BP is now considering conducting all future FITs remotely, which would result in significant cost savings related to travel and further reduce operational risk.

• In West Texas, OneStim deployed fit-for-basin fracturing technology services to protect production from parent-child well interference effects for MDC Texas Energy. The service—comprised of BroadBand Shield* fracture-geometry control technology and the equipment required—was deployed in conjunction with a pumping and wellsite equipment services provider. After 60 days, the infill well treated with BroadBand Shield technology, located closest to the parent well, achieved approximately 10% higher production performance compared to an adjacent infill well farther from the parent well. The parent well experienced no detrimental production impact following the infill well’s stimulation treatments, indicating no negative fracture interference.

• Schlumberger entered into a collaboration agreement with China Petroleum Logging Co., Ltd (CPL), a subsidiary of China National Petroleum Corporation (CNPC), to jointly manufacture fit-for-basin wireline downhole technology in China. As part of this technology access agreement, Schlumberger will support CPL on the manufacturing and sustaining activities for ThruBit* through-the-bit logging services technology at the CPL technology center in Xi’an, Shaanxi province. The increasing number of horizontal wells undertaken by CNPC each year has made the differentiated technology of the ThruBit services platform essential to their reservoir evaluation strategy. This technology collaboration will enable CPL to significantly improve their logging capabilities in horizontal and vertical wells across China while increasing Schlumberger’s participation in this market.

• In Malaysia, the SpectraSphere* fluid mapping-while-drilling technology has helped add value to PETRONAS brownfield assets. The technology developed by Schlumberger Drilling & Measurements eliminated fluid uncertainty in untapped fault blocks while mitigating operational risks. SpectraSphere technology was successfully deployed in two field rejuvenation campaigns in the Temana and Dulang Fields, offshore Malaysia. It involved wellbores with up to 80° of inclination and large overbalance, resulting in approximately USD 2 million in operating cost savings. Fluid identification was performed in real-time, in multiple reservoir horizons. The data provided by SpectraSphere assisted PETRONAS petrotechnical experts to firm up and accelerate perforation and completion design, in addition to understanding the reservoir and improving reserve estimation.

This quarter’s contract awards reflect the diversity of our business models in different basins around the globe, including alignment with in-country value, offshore processing, and subsea integration.

• Kuwait Oil Company awarded Schlumberger a five-year contract with an optional one-year extension valued at USD 320 million for the provision of coiled tubing and stimulation services. Some of the technologies include ACTive* real-time downhole coiled tubing services, OpenPath Reach* extended-contact stimulation service, and OpenPath Sequence* diversion stimulation service.

• In Oman, OQ—the company regrouping Oman Oil and Orpic Group's nine business units—awarded Schlumberger a contract valued at more than USD 125 million for the design, engineering, procurement, and construction of a production facility in the Bisat Field. The contract includes four years of operations and maintenance support with an optional one-year extension. First oil is scheduled for delivery in late 2021.

• SBM Offshore awarded Schlumberger five contracts for the provision of a comprehensive portfolio of processing technologies to be used on a floating production, storage, and offloading (FPSO) vessel. The packages will be delivered in 2022 and include NATCO DUAL FREQUENCY* electrostatic treaters, CYNARA* acid gas removal membrane systems, VORTOIL* deoiling hydrocyclones, and EPCON Dual* compact flotation units.

• China National Offshore Oil Corporation (CNOOC) awarded OneSubsea an engineering, procurement, and construction (EPC) contract for the supply of an integrated subsea production and processing system for the Lufeng 22-1 oil field in the South China Sea. The contract, valued at USD 143 million, includes subsea trees, an integrated boosting and manifold system, a unified control system, an integrated power-control umbilical, a virtual flow metering solution, and estimated services. The project consists of four deepwater wells and a 19-km tieback system to a newly built platform—the Lufeng 15-1—which will act as a central production and processing facility for the Lufeng development project.

Charges & Credits

In addition to financial results determined in accordance with US generally accepted accounting principles (GAAP), this second-quarter 2020 earnings release also includes non-GAAP financial measures (as defined under the SEC’s Regulation G). In addition to the non-GAAP financial measures discussed under “Liquidity”, net income (loss), excluding charges & credits, as well as measures derived from it (including diluted EPS, excluding charges & credits; Schlumberger net income (loss), excluding charges & credits; and effective tax rate, excluding charges & credits) are non-GAAP financial measures. Management believes that the exclusion of charges & credits from these financial measures enables it to more effectively evaluate Schlumberger’s operations period over period and to identify operating trends that could otherwise be masked by the excluded items. These measures are also used by management as performance measures in determining certain incentive compensation. The foregoing non-GAAP financial measures should be considered in addition to, not as a substitute for or superior to, other measures of financial performance prepared in accordance with GAAP. The following is a reconciliation of these non-GAAP measures to the comparable GAAP measures.

There were no charges or credits during the first six months of 2019.

Segments

Prior period amounts have been reclassified to the current period presentation.

Supplemental Information

About Schlumberger

Schlumberger is the world’s leading provider of technology for reservoir characterization, drilling, production, and processing to the oil and gas industry. With product sales and services in more than 120 countries and employing approximately 85,000 people as of the end of the second quarter of 2020 who represent over 170 nationalities, Schlumberger supplies the industry’s most comprehensive range of products and services, from exploration through production, and integrated pore-to-pipeline solutions that optimize hydrocarbon recovery to deliver reservoir performance sustainably.

Schlumberger Limited has executive offices in Paris, Houston, London, and The Hague, and reported revenues of $32.92 billion in 2019. For more information, visit www.slb.com.

*Mark of Schlumberger or Schlumberger companies.

Notes

Schlumberger will hold a conference call to discuss the earnings press release and business outlook on Friday, July 24, 2020. The call is scheduled to begin at 8:30 a.m. US Eastern Time. To access the call, which is open to the public, please contact the conference call operator at +1 (844) 721-7241 within North America, or +1 (409) 207-6955 outside North America, approximately 10 minutes prior to the call’s scheduled start time, and provide the access code 4013483. At the conclusion of the conference call, an audio replay will be available until August 24, 2020 by dialing +1 (866) 207-1041 within North America, or +1 (402) 970-0847 outside North America, and providing the access code 7688409. The conference call will be webcast simultaneously at www.slb.com/irwebcast on a listen-only basis. A replay of the webcast will also be available at the same website until August 24, 2020.

This second-quarter 2020 earnings release, as well as other statements we make, contain “forward-looking statements” within the meaning of the federal securities laws, which include any statements that are not historical facts, such as our forecasts or expectations regarding business outlook; growth for Schlumberger as a whole and for each of its product lines (and for specified products or geographic areas within each product line); oil and natural gas demand and production growth; oil and natural gas prices; pricing; Schlumberger’s response to, and preparedness for, the COVID-19 pandemic; access to raw materials; improvements in operating procedures and technology; capital expenditures by Schlumberger and the oil and gas industry; the business strategies of Schlumberger and Schlumberger’s customers; Schlumberger’s digital strategy; Schlumberger’s restructuring efforts and charges recorded as a result of such efforts; our effective tax rate; Schlumberger’s APS projects, joint ventures, and alliances; future global economic and geopolitical conditions; and future results of operations. These statements are subject to risks and uncertainties, including, but not limited to, changing global economic conditions; changes in exploration and production spending by Schlumberger’s customers, and changes in the level of oil and natural gas exploration and development; the results of operations and financial condition of Schlumberger’s customers and suppliers, particularly during extended periods of low prices for crude oil and natural gas; Schlumberger’s inability to sufficiently monetize assets; the extent of future charges; general economic, geopolitical, and business conditions in key regions of the world; foreign currency risk; pricing pressure; weather and seasonal factors; unfavorable effects of health pandemics; availability and cost of raw materials; operational modifications, delays, or cancellations; challenges in Schlumberger’s supply chain; production declines; Schlumberger’s inability to recognize intended benefits from its business strategies and initiatives, such as digital or new energy; changes in government regulations and regulatory requirements, including those related to offshore oil and gas exploration, radioactive sources, explosives, chemicals, hydraulic fracturing services, and climate-related initiatives; the inability of technology to meet new challenges in exploration; the competitiveness of alternative energy sources or product substitutes; and other risks and uncertainties detailed in this second-quarter 2020 earnings release and our most recent Forms 10-K, 10-Q, and 8-K filed with or furnished to the Securities and Exchange Commission. If one or more of these or other risks or uncertainties materialize (or the consequences of any such development changes), or should our underlying assumptions prove incorrect, actual outcomes may vary materially from those reflected in our forward-looking statements. Statements in this second-quarter 2020 earnings release are made as of July 24, 2020, and Schlumberger disclaims any intention or obligation to update publicly or revise such statements, whether as a result of new information, future events, or otherwise.

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